Paper 2 General Insurance Quiz 57

The Insurance Claims Complaints Bureau (ICCB) is designed to handle disputes related to personal insurance claims. It has a jurisdictional limit of HK$800,000 for the value of the claim. Complaints exceeding this amount, or those involving commercial, industrial, or third-party insurance, fall outside the ICCB’s purview and must be resolved through other means such as litigation or arbitration. Therefore, a dispute concerning a commercial property insurance claim, regardless of its monetary value, would not be handled by the ICCB.

The question tests the understanding of the scope of theft insurance, specifically concerning damage to the premises during an attempted theft. According to the provided text, theft policies typically include coverage for damage caused by thieves to the insured premises when making forcible and violent entry or exit. This damage is not subject to a separate sum insured but is covered as part of the overall protection for stock and specified contents. Therefore, if a thief breaks a window to gain entry, the cost of repairing that window would be covered under the theft policy as damage associated with the attempted theft, even though it’s not a direct loss of the insured property itself.

The question tests the understanding of the ‘pro rata average’ condition in insurance policies, specifically how under-insurance affects claim payouts. The scenario describes a situation where the sum insured for contents is HK$500,000, but the actual value at risk is HK$750,000. This means the property is under-insured by 33.33% (since HK$500,000 is 66.67% of HK$750,000). The ‘pro rata average’ condition stipulates that the claim payment will be reduced proportionally to the extent of under-insurance. Therefore, if a loss of HK$150,000 occurs, the payout will be limited to 66.67% of the loss, which is HK$100,000 (HK$150,000 * (HK$500,000 / HK$750,000)). The remaining HK$50,000 of the loss is borne by the insured due to under-insurance. The explanation clarifies that the average clause applies when the sum insured is less than the value at risk, and the claim is adjusted accordingly.

The ‘Schedule’ within a scheduled policy form is the section that specifically details all information pertinent to the individual risk being insured. This includes crucial data such as the policy number, the insured’s particulars, the sums insured or limits of liability, effective dates, a description of the insured subject matter, the premium paid, and any special terms, warranties, exclusions, or endorsements that modify the standard policy wording. The Recital Clause introduces the contract, referencing parties and the proposal form, while the Operative Clause outlines the circumstances of cover and perils. General Exceptions apply universally across the entire policy, not just to specific sections.

The scenario highlights the importance of the insured’s duty to notify the insurer of a potential claim promptly. While the insured believed 20 days was reasonable and presented damaged parts, the insurer’s ability to investigate was prejudiced by the prior repair. The Complaints Panel acknowledged the prejudice but considered the layman’s perspective and the absence of a poor claims history. However, the core principle tested here is the insurer’s right to investigate. When an insured fails to provide the insurer with a reasonable opportunity to investigate the cause and extent of damage before repairs are made, it can be considered a breach of a policy condition that may lead to claim rejection, especially if the delay significantly hinders the insurer’s assessment. The Complaints Panel’s decision to award the claim was based on specific mitigating factors and a benefit of the doubt, not a general rule that late notification after repair is always acceptable. The question probes the fundamental impact of such a delay on the insurer’s ability to assess the claim’s validity and quantum, which is a key aspect of policy conditions.

This question tests the understanding of the legal implications of policy renewals in Hong Kong. Statement (i) is true because the duty of utmost good faith is a continuous obligation that applies at all stages of the insurance contract, including renewal. Statement (ii) is also true as a renewal is generally considered the creation of a new contract, not merely a continuation of the old one, meaning new terms and conditions can be introduced. Statement (iv) is correct because insurers have a duty to inform policyholders if they do not intend to renew a policy, allowing the insured to seek alternative coverage. Statement (iii) is false because while terms can be negotiated, they are not ‘freely’ negotiable in the sense that the insurer can unilaterally change them without notice or agreement; renewals often involve standard terms or specific changes communicated to the insured.

This question tests the understanding of how an excess works in motor insurance, specifically the difference between a voluntary and a compulsory excess, and how they interact. A voluntary excess is chosen by the policyholder to reduce the premium, while a compulsory excess is imposed by the insurer. Standard policy excesses are a type of compulsory excess that applies universally or to specific risk factors without a premium discount. In this scenario, the policyholder chose a voluntary excess of HK$5,000. The insurer then applied a compulsory underwriting excess of HK$2,000 due to the vehicle’s high performance. Standard policy excesses, by definition, are always in parallel with other excesses and do not qualify for premium discounts. Therefore, the total excess applicable to the claim would be the sum of the voluntary and the compulsory underwriting excess, plus any standard policy excess. Since the question states a standard policy excess of HK$1,000 is applicable, it is added to the other excesses. The total excess is HK$5,000 (voluntary) + HK$2,000 (underwriting) + HK$1,000 (standard) = HK$8,000. The claim amount is HK$15,000. The amount recoverable is the claim amount minus the total excess: HK$15,000 – HK$8,000 = HK$7,000. The explanation correctly identifies that standard policy excesses are applied in addition to other excesses and do not affect premium discounts, leading to the calculation of the total excess and the final recoverable amount.

A voluntary excess, also known as a ‘self-insured retention’ or ‘excess requested by the insured’, is an amount that the policyholder agrees to bear themselves in the event of a claim. This is typically offered by insurers as a way to reduce the premium payable by the insured. The insured chooses a higher excess amount in exchange for a lower premium. This is in addition to any compulsory excess that might apply to the policy, such as a young driver excess.

The question tests the understanding of how premiums are determined in Personal Accident (PA) insurance, specifically referencing the provided text. The text explicitly states that while individual features like age might have underwriting consequences, the standard premium calculation is primarily based on the insured’s occupation, which is classified according to accident risk. Other factors like gender are noted as having no impact on premiums, all else being equal. Therefore, occupation is the fundamental basis for premium calculation in this context.

This question tests the understanding of what constitutes a material fact that an applicant must disclose to an insurer. According to insurance principles, a material fact is one that would influence a prudent underwriter’s decision to accept the risk or the terms offered. Storing highly flammable materials like chemicals in a general store, where such items are not typically expected, significantly increases the fire risk beyond what a prudent underwriter would anticipate for a general store. This directly aligns with the definition of a material fact that renders a risk greater than would otherwise be supposed. Options B, C, and D describe situations that are either common knowledge (typhoons in Hong Kong), are improvements to the risk (sprinkler systems), or are facts the insurer is expected to know (normal occupational dangers), and therefore do not need to be disclosed as they are not material facts that increase the insurer’s risk or influence their decision in the same way.

Fidelity Guarantee Insurance indemnifies employers against financial losses resulting from dishonest acts by their employees. The question describes a scenario where an employee’s actions led to a financial shortfall due to unauthorized transactions. This directly aligns with the core purpose of fidelity guarantee insurance, which is to cover losses arising from employee fraud or dishonesty. Options B, C, and D describe different types of insurance or concepts not directly applicable to this specific situation. Professional Indemnity covers negligence in providing professional services, Public Liability covers damage to third parties, and a Performance Bond guarantees the fulfillment of contractual obligations, none of which address employee theft or fraud.

The question tests the understanding of policy conditions, specifically the ‘Average’ condition. The Average clause is a penalty for under-insurance. If the sum insured is less than the value of the property at the time of loss, the insurer will only pay a proportion of the loss, calculated based on the ratio of the sum insured to the actual value. In this scenario, the property’s value is HK$500,000, but it is insured for only HK$300,000. The loss is HK$100,000. Applying the Average clause, the insurer will pay (Sum Insured / Value of Property) * Loss = (HK$300,000 / HK$500,000) * HK$100,000 = 0.6 * HK$100,000 = HK$60,000. Therefore, the insured will bear the remaining HK$40,000.

The question tests the understanding of specific exclusions in third-party liability cover for commercial vehicles, as distinct from private car policies. The ‘tool of trade’ clause specifically excludes damage caused when a vehicle is used as a tool for its primary function (e.g., a digger in construction). While statutory provisions mandate compulsory insurance for third-party death/injury, this exclusion applies to other forms of third-party damage arising from such use. Food poisoning claims are also excluded if the vehicle is a mobile food vendor, and damage to stock-in-trade or specific equipment on the vehicle is also excluded. Damage to roads due to vibration or weight is another specific exclusion. Therefore, the use of a vehicle as a tool of trade, except where legally mandated for compulsory insurance, is a key exclusion.

The core principle of an indemnity policy is to restore the insured to their pre-loss financial position. When new parts are used to repair an older vehicle, these new parts are inherently superior to the old, worn-out parts. This improvement in condition is termed ‘betterment’. The insurer is not obligated to provide a better-than-before condition; therefore, the insured is expected to contribute to the cost of the new parts to the extent that they receive an enhanced value. The scenario states the insurer applied a 35% betterment contribution, which the Complaints Panel deemed reasonable given the vehicle’s age and mileage, and the fact that the policy excluded depreciation. This aligns with the principle of indemnity, as the insured is not being compensated for the full cost of new parts but rather for the depreciated value of the old parts they are replacing.

The Employees’ Compensation Ordinance in Hong Kong establishes a strict liability for employers regarding employee injuries or death arising out of and in the course of employment. This means the employer is liable regardless of fault. The scenario describes an employee injured in a traffic accident while commuting home after a client meeting. For the injury to be covered under the EC policy, it must be demonstrably linked to the employment. While the meeting was work-related, the accident occurred during the commute home, which is generally considered outside the direct scope of employment unless specific circumstances, such as the employer providing transport or the commute being an integral part of the job duties, are present. Therefore, the key factor is whether the accident ‘arose out of and in the course of employment,’ which is a factual determination. The other options describe situations that are either not directly relevant to the core principle of strict liability under the Ordinance or misinterpret the scope of ‘arising out of and in the course of employment’.

The Code of Conduct for Insurers, established by the Hong Kong Federation of Insurers (HKFI), specifically addresses the expected standards of good insurance practice for personal insurance policies sold to individual policyholders residing in Hong Kong. It covers a broad spectrum of practices, including underwriting, claims handling, product understanding, customer rights, and advising/selling practices. While the Insurance Companies Ordinance (ICO) sets out foundational requirements for insurers’ authorization, capital, and solvency, and the Code of Practice for the Administration of Insurance Agents details intermediary conduct, the Code of Conduct for Insurers is the primary document outlining the industry’s self-regulatory standards for direct interactions with policyholders concerning the sale and management of personal insurance products.

A Performance Bond is a type of guarantee, distinct from an insurance policy, that ensures a contractor completes a construction project within the agreed timeframe. It is a financial commitment to cover potential losses if the contractor defaults. While personal accident insurance covers disablement, and public liability insurance covers third-party damages, neither of these directly guarantees the completion of construction work.

The question tests the understanding of the ‘pro rata average’ condition in insurance policies, specifically how under-insurance affects claim payouts. The scenario describes a situation where the sum insured for contents is less than the actual value of the contents at the time of loss. The pro rata average condition stipulates that the claim payment will be reduced proportionally to the extent of under-insurance. In this case, the sum insured ($500,000) represents 80% of the actual value ($625,000). Therefore, the claim for a loss of $100,000 will be paid at 80% of that amount, resulting in a payout of $80,000, provided it does not exceed the sum insured.

This question tests the understanding of the specific exclusions within a Product Liability policy. Option (a) correctly identifies that liability stemming from the inherent design or formulation of a product, such as a cabinet unable to support a weight exceeding its specified limit, is typically not covered. Options (b), (c), and (d) describe situations that are generally covered or are common exclusions in other types of liability insurance but not the specific design flaw exclusion mentioned in the provided text.

In the context of marine insurance claims, the assured (the policyholder) is typically responsible for arranging and initially paying for a surveyor’s report. This report is crucial for independently investigating the cause and extent of a reported loss. While the surveyor’s fee is generally recoverable from the insurer if the claim is valid, the initial appointment and payment rest with the assured. Loss adjusters, on the other hand, are usually appointed and paid by the insurer, acting as independent experts for claims investigation and negotiation, particularly for property and liability losses.

An insurance broker acts as an agent for the proposer, meaning they are legally identified with the proposer. Consequently, any failure by the broker to disclose material facts, such as withholding or misrepresenting information about the client or the proposed risk, is considered a breach of the duty of utmost good faith. This breach is legally imputed to the proposer, potentially voiding the insurance contract from its inception due to the ‘basis of contract’ clause often found in proposal forms, which establishes the truthfulness of the provided information as a condition of the contract.

In the context of marine insurance claims, the assured (the policyholder) is typically responsible for arranging and initially paying for a surveyor’s report. This report is crucial for independently investigating the cause and extent of a reported loss. While the surveyor’s fee is generally recoverable from the insurer as part of a valid claim, the initial appointment and payment rest with the assured. Loss adjusters, on the other hand, are usually appointed and paid by the insurer, acting as independent experts for claims investigation and negotiation, particularly for property and liability losses.

This question tests the understanding of the distinction between ‘Specified Perils’ and ‘All Risks’ cover in property insurance. ‘Specified Perils’ cover only losses caused by events explicitly listed in the policy, requiring the claimant to prove the cause of loss. ‘All Risks’ cover, conversely, covers all accidental losses unless specifically excluded by the policy, shifting the burden of proof to the insurer to demonstrate an exclusion applies. The scenario describes a situation where a loss occurred, and the insurer is attempting to deny coverage by claiming it wasn’t a covered peril. Under ‘Specified Perils’ cover, the claimant would need to demonstrate the loss was due to a named peril. However, if the policy was ‘All Risks’, the insurer would need to prove the loss falls under an exclusion. The question implies the insurer is trying to avoid liability by stating the cause wasn’t covered, which is characteristic of the claimant needing to prove the cause under ‘Specified Perils’ cover.

The scenario describes a situation where an insurer rejected a hospitalization claim due to a pre-existing condition. The insured had consulted for rectal bleeding 15 months before applying for insurance, and the insurer believed the colon tumor could not have developed within 10 days of policy inception. The Complaints Panel, considering the tumor size, agreed that it likely took time to grow, thus supporting the insurer’s decision. The key principle here is the “pre-existing condition” exclusion, which typically covers illnesses or injuries that commenced or showed signs and symptoms before the policy’s effective date. While the exact onset date can be difficult to pinpoint, the evidence (tumor size and the insured’s prior consultation for related symptoms) indicated the condition was present before the policy commenced, justifying the claim rejection under the policy’s terms.

A ‘Scheduled Policy Form’ is a common structure for insurance policies that includes a policy schedule. This schedule details specific information about the policy, such as the insured’s name, the property covered, the sum insured, and the period of insurance. The ‘Signature Clause’, also known as the Attestation Clause, is a specific part of this scheduled policy form where the insurer formally confirms their agreement to the terms and conditions outlined in the contract. Therefore, the Signature Clause is an integral component of a Scheduled Policy Form.

In the context of marine insurance claims, the assured (the policyholder) is typically responsible for arranging and initially paying for a surveyor’s report. This report serves as an independent assessment of the cause and extent of the loss. While the surveyor’s fee is generally recoverable from the insurer as part of a valid claim, the initial appointment and payment usually fall to the assured. This contrasts with non-marine loss adjusters, who are more commonly appointed and paid by the insurer.

A commercial motor policy designed for vehicles used in construction, such as those involved in digging, often contains specific exclusions. The ‘tool of trade’ clause is a common exclusion that removes coverage when the vehicle is being used for its specialized function as a tool (like digging) rather than for general transportation. This is because the risks associated with operating such equipment are typically covered under different types of insurance, such as contractor’s liability or equipment insurance, and are not contemplated within standard motor insurance. The ‘business use’ clause relates to the general purpose for which the vehicle is used (e.g., delivery, personal use), the ‘working operations clause’ is not a standard term for this type of exclusion, and the ‘professional liability clause’ pertains to errors or omissions in providing professional services, not the use of a vehicle as equipment.

A ‘Condition Precedent to the Contract’ is a term that must be fulfilled for the insurance agreement to become effective. Failure to meet this condition means the contract never legally begins. In contrast, a ‘Condition Precedent to Liability’ relates to a term whose breach invalidates a specific claim, but the contract itself may still be in force. A ‘Condition Subsequent to the Contract’ is a term that must be adhered to during the policy’s currency, but its breach typically leads to the termination of cover for a specific event or period, rather than invalidating the entire contract from inception. ‘Consequential Loss’ refers to indirect financial losses resulting from an insured event, which are often excluded from property insurance but covered by specific business interruption policies.

In the context of insurance contracts, a ‘representation’ is a statement of fact made by the proposer before the contract is concluded. The principle of utmost good faith (uberrimae fidei) requires that such representations, particularly those concerning material facts, must be substantially true. If a representation is found to be untrue, and it relates to a material fact that influences the insurer’s decision to accept the risk or the terms offered, the insurer may have grounds to void the contract. The requirement is for substantial truth, meaning minor inaccuracies that do not affect the risk assessment are generally acceptable, but significant falsehoods can invalidate the policy. Options (b), (c), and (d) present absolute or overly strict conditions that are not aligned with the legal standard for representations in insurance.

The Employees’ Compensation Ordinance (ECO) mandates compulsory insurance for employers to cover their liability for employee injuries or deaths arising out of and in the course of employment. While the ECO covers accidents, it does not typically cover liabilities arising from breaches of contract unless those breaches also result in an injury covered by the ordinance. Product liability insurance, on the other hand, specifically addresses the manufacturer’s or seller’s duty of care to consumers regarding defective products, which is distinct from an employer’s liability to its employees. Therefore, a claim for damages due to a defective product supplied by the employer to a third party, even if the third party is also an employee, would fall under product liability, not employees’ compensation insurance.